Against Monopoly

defending the right to innovate

Monopoly corrupts. Absolute monopoly corrupts absolutely.

Copyright Notice: We don't think much of copyright, so you can do what you want with the content on this blog. Of course we are hungry for publicity, so we would be pleased if you avoided plagiarism and gave us credit for what we have written. We encourage you not to impose copyright restrictions on your "derivative" works, but we won't try to stop you. For the legally or statist minded, you can consider yourself subject to a Creative Commons Attribution License.

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Cato Unbound on the Future of Copyright

Rasmus Fleischer, a Swedish anti-copyright activist, has the lead essay in Cato Unbound on "The Future of Copyright".

Money quote:

Believers in copyright keep dreaming about building a digital simulation of a 20th-century copyright economy, based on scarcity and with distinct limits between broadcasting and unit sales. I don't believe such a stabilization will ever occur, but I fear that this vision of copyright utopia is triggering an escalation of technology regulations running out of control and ruining civil liberties. Accepting a laissez-faire attitude regarding software development and communication infrastructure can prevent such an escalation.

"...we are all the Grateful Dead"

Paul Krugman has a good column today in the New York Times about how technology is undermining the monopoly formerly known as intellectual property. He uses the example of the Amazon Kindle and notes the parallel between digital downloads of books and music. In noting that Charles Dickens made money from book tours, he overlooks the fact that Dickens was front and center in the copyright monopolists' battle against the "pirates." He also might have noted that, contrary to legend, Dickens was paid royalties by three American publishers, including Harper & Brothers.

As he puts it, "in the long run we are all the Grateful Dead"--even if the Dead did sue Wolfgang's Vault for copyright infringement.

Here is the article.

The Index Fund Patent Battle Heats Up

Robert Arnott, head of Research Affiliates Fundamental Indexes, says that rival index fund managers are stealing his idea, which he hopes to patent. He bases his stock index on firms' sales, cash flow, book value, and dividends, all staples of fundamental analysis, which are as old as the hills. Jeremy Siegel, a finance professor and adviser to WisdomTree Investments Inc., a fund company that bases its indexes more narrowly on earnings and dividends, claims, rightly, that Mr. Arnott's idea is not new and that his idea is too basic to be patented. It certainly fails the novelty test. Mr. Arnott's patent has been rejected once, but he's still trying to get his monopoly.

Here is the story.

Here is one patent bid that should not see the light of day.

In the meantime, if you want to buy an index fund, you know which family to buy and which one not to buy. And Wisdom Tree has outperformed Research Affiliates lately.

A Patent for an Index Fund Method?

Robert D. Arnott, Chairman of Research Affiliates, wants to patent a method for a stock index fund based on certain fundamental measures such as revenue, etc. Here is the article.

The problem is that fundamentally-weighted index funds (such as Wisdom Tree's) have been around for some time. More importantly, there is tons of prior art that this method is founded on, such as the research of Fama and French.

Question: if he files a patent on this, can anyone file a brief with the USPTO opposing it? Inquiring minds want to know.

Apple's Rotten Trademark Gambit

Today's Wall Street Journal has a special "Business Insight" report, which includes an article on innovation, "Shape of Things to Come", highlighting Apple's recent bid for trademarks related to its iPod and iPhone, and for all we know several other consumer products.

The story about how Apple leveraged its design patents to win these trademarks is a fascinating study in rent-seeking at its finest. They used them as a bridge to "nontraditional trademarks."

What's really interesting is how the Patent examiner suggested changes to Apple's trademark applications so that they could get in under the wire. Sounds like a bit of corruption to me.

Apple has had nothing if not a gigantic first mover advantage over its competitors thanks to rapid and repeated innovation in product design, as well as great execution and saavy marketing. Add it all up and you get a company with a long-term market beating stock, propelled by net operating margins consistently over 20% and a weighted average cost of capital under 10%. Valuepro.net pegs the latter at about 8.6%. Apple long ago earned back its cost of capital on its iPod.

The idea that Apple's recently won trademarks are necessary for the company to earn its shareholders an above average return on capital (or equity) is plainly contradicted by the facts of the case. Too bad the Patent Office examiner doesn't have some economics in his toolkit.

Btw, Apple patented its transparent stairways in its stores, so don't think you can copy their cool design at home.

Some Fashion Designers Sue Innovators; Others Just Innovate

The March 31 issue of Business Week had an interesting article on recent efforts by some fashion designers to sue their copiers, "Put a Patent on That Pleat." Stuart Weitzman and Diane von Furstenberg sued a couple competitors, including Target, which copied von Furstenberg's "spotted frog" print. Target spinelessly caved in and stopped selling its frog knockoffs, saying it respected others' "intellectual property." This is the kind of stuff Ayn Rand meant when she talked about "the sanction of the victim." (N.B. I am neither a Randian, nor an Objectivist; and I oppose her defense of patents and copyrights.)

But lo and behold, movie mogul and impresario Harvey Weinstein, who owns the Halston label, is moving to make its catwalk fashions available right off the runway at Net-a-Porter.com, with the idea of using a first-to-market model to beat the pirates at their own game and garner the rents earned from satisfying the market demands of demanding fashionistas first. Even Mr. Weitzman and others are innovating by designing original creations with new materials and patterns that make it harder for pirates to copy them. Some of the new materials are too expensive for knockoff purveyors to copy.

In September 2007, James Surowiecki revisited "The Piracy Paradox", the tendency noted by law school professors Kal Raustiala and Christopher Sprigman of fashion innovation to flourish in the absence of strong intellectual "property" protection.

China--Land of the Rising Patent Regime

China's patent regime (and I"P" system generally) is growing like a weed. Trademark applications there have increased 60% in five years. The number of patents issued has almost doubled to 850,000.

China has added 50 courts that handle I"P" cases. The lawyers are getting rich and, of course, are preventing non-Chinese firms from filing patents or representing clients in court. In fact, the lawyers are the main beneficiaries of the monopoly formerly known as intellectual property. Isn't monopoly great?

The Economist notes that under Mao private property was considered to be theft of the masses. However, it gets it wrong when it implies that the patent laws enacted in China starting in 1985 (and enforced starting in 2001) were consistent with private property.

Patents are a kind of theft of the masses. As Prodhoun should have said, "intellectual property is theft."

Two Chinese Firms Sued for Copyright Infringement

Chinese internet firms Baidu.com Inc. and Sogou (part of Sohu.com) have been sued in a Chinese court for allowing illegal downloads of music files. Here is the story in today's Wall Street Journal. The plaintiffs are the usual suspects--Chinese based units of the labels. Sony BMG Music, Warner Music Group, and Viviendi are suing both companies; EMI's Gold Label is suing Sogou.

The suits are for relatively small but still unprecedented (by Asian standards) sums ($9 mill for Baidu and $7.5 mill for Sogou), but could open the floodgates for real money, even by Sen. Dirksen's standards.

Baidu has revenue-sharing deals deals in place with many Chinese labels, including EMI. These have been nixed by the other majors.

Meanwhile, MySpace Music has cut a deal with Warner, Sony BMG, and Universal that offers them equity and ad revenue.

Here is the article, from Business Week, April 14.

Paul F. Cwik on IP and Austrian Economics: A Comment

At the recent Austrian Scholars Conference 2008, held March 13-15 (scroll down at the Preliminary Schedule in pdf), Stephan Kinsella chaired a session on the monopoly formerly known as intellectual property. (Okay, this wasn't the actual title.) Paul F. Cwik gave a paper "Is There Room for Intellectual Property Rights in Austrian Economics?" (pdf--scroll down on the left; I couldn't get the other link to work, so I linked to this), in which he argued that there is, and against the position staked out by Kinsella in his paper "Against Intellectual Property". Here is a blog post on it.

The crux of Prof. Cwik's paper is that IP is a public good, based on a natural right to property, and can be fenced off, just as Austrians argue that other public goods can be. His defense of a natural right to IP (he uses copyright as the paradigmatic example, and follows Murray N. Rothbard in claiming that anything created, including an invention, can be copyrighted) essentially consists of the assertion that the created thing, say the word order of a book, is the product of one's labor and should therefore be protected against anyone else's copying it.

Without getting into the public goods debate, which is secondary to the natural rights argument anyway, why does Jones' application of labor to newly homesteaded or otherwise justly owned property give him the right to block Smith or anyone else from making and/or selling or otherwise commercially using their justly acquired copies of his creation? Merely asserting that he has this right, as Prof. Cwik does, doesn't make it a sound argument. After all, neither Smith nor anyone else claims the right to prevent Jones from using his copies of his new creation. Everyone agrees that Jones has the right of first disposal of his property, including the right to sell copies of it. Contrary to what Prof. Cwik thinks, Jones' first mover advantage and the ability to sell complementary and derivative services based on his creation gives him a powerful edge over potential competitors (which of course he is free to squander, hello WebVan and Pets.com--meet Fresh Direct and Petsmart), and enables him at least to have a shot, if not a guarantee, at earning back his cost of capital in a competitive market.

Also, I have a beef with John Locke, Murray Rothbard, and Prof. Cwik. Locke held that a laborer owns his labor; Rothbard et al. have followed him over this cliff. No one owns labor per se, which is an action. How do you own an action? What laborers sell is their labor services; an actor sells his acting services, an assembly line worker sells laborer services, say building a car or at least some action along the assembly line.

So much, then, for the doctrine that he necessarily owns the fruits of his labor, if this is meant literally. If an auto worker tried to walk out at the end of the week with a car that just rolled off the assembly line, I'm guessing he wouldn't get far. His compensation is a wage and contractually attached benefits.

This is also true for Crusoe, laboring on a deserted island. He isn't selling his labor services in a labor market, but he is applying them to whatever he is making, perhaps a fishing net.

Would These Pass Muster with IP Law?

Two new names for businesses:

For a soft drink line:

Eliot's Spritzers

For a perfume line:

Client No. 9

Inquiring minds want to know.

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Killing people with patents

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